Divestment campaign moves into US mutual funds

By Jennifer Levitz

Jan 27, 2007 (WASHINGTON) — The campaign to force companies not to invest in Sudan is moving into new territory: your mutual funds.

For years, Sudan’s Darfur region has been the scene of brutal militia attacks that have left hundreds of thousands dead — violence described by the United Nations as getting support from the Sudanese government, and by the Bush administration as constituting “genocide.”

At the same time, Sudan is home to investments by large international companies that are fixtures in many Americans’ mutual funds and retirement plans.

In recent months, an array of efforts have been launched to press companies, pension plans — and now, mutual funds — not to do business in Sudan. The goal is to urge Sudan’s government to find an end to the violence.

There have already been some successes: In the past week, Siemens AG, the German electronics giant and a target of activists, said it would pull out of Sudan for “humanitarian” reasons by July. A few months ago, Siemens defended its Sudan presence, saying it was helping develop the country. Lawmakers in Texas, Nebraska and Colorado in recent weeks have introduced measures forcing state pension funds to divest, following the lead of California and others that have already done so.

Activists are now broadening their campaign by targeting Fidelity Investments, one of the biggest U.S. fund companies, with a letter-writing campaign and a television appearance by actress Mia Farrow, who has been outspoken on Darfur. The campaign, calling itself Fidelity Out of Sudan! is based in Boston.

“I’m certainly not Brad Pitt,” Ms. Farrow said in an interview, “But in my own small way I can do something.”

Through its mutual funds, Boston-based Fidelity is the largest U.S. holder of American depositary shares in PetroChina Co., a Chinese oil giant with Sudanese projects. Fidelity’s Contrafund, one of its top performers, has the largest stake in PetroChina of any mutual fund.

Fidelity said in a statement that it believes “the resolution of complex social and political issues must be left to the appropriate authorities of the world that have the responsibility, and capability, to address important matters of this type.”

The increased focus on Sudan is also spawning a new class of investments: Sudan-free mutual funds and other offerings. Claymore Securities Inc. has issued an exchange-traded fund that shuns Sudan-related projects. It follows in the footsteps of State Street Corp., Northern Trust Corp. and Barclays PLC, which have marketed similar products recently.

Another group of activists has started to target insurance giant Berkshire Hathaway Inc., another large holder of PetroChina. A Berkshire spokeswoman says the divestment campaign will likely be a topic at the company’s annual meeting in May. The Fidelity activists are chronicling their campaign at (www.fidelityoutofsudan.com).

U.S. companies have been prohibited from doing business in Sudan since 1997, but it is not illegal for an American firm to own shares in a foreign company doing business there.

There are ways for investors to see if a mutual fund has Sudan-related investments. The site sudandivestment.org includes a feature, “The Sudan Screening Tool,” which evaluates fund holdings based on criteria related to Darfur. Another site, investedinterests.com, offers a similar tool that examines an array of issues, from Sudan to terrorism.

Some pro-trade advocates believe the divestiture movement has gone overboard. The U.S. District Court in Chicago is expected to rule shortly on a challenge by the National Foreign Trade Council to a new Illinois law requiring public pension funds to divest from Sudan-related investments by July. The group contends the measure intrudes on the federal government’s constitutional power to conduct foreign policy.

Sudan’s ambassador to the U.S., Khidir Haroun Ahmed, publicly expressed “deep concern” last year about the divestment campaign, saying it “will impede development [by] hampering foreign investment that is vital to rebuilding the country.” The concern is that it could target firms that may in fact be helping the poor of Sudan by providing jobs.

It is not the first time a campaign like this has been tried. In the 1980s, as criticism of South Africa’s apartheid regime gained momentum, at least 25 U.S. states and 83 cities protested by yanking investments out of the country.

Subsequent research indicated the effort did push down the stocks of companies targeted. A 2002 study published in the journal Business & Society found that when the divestment campaign in South Africa ended in 1993 with the fall of apartheid, the stocks of 87 boycotted U.S. companies with interests there increased significantly in 40 trading days.

In Sudan, the focus is on oil. “Oil revenue is a crucial source of income for the Sudanese government and is essential to the funding of the government’s military operations, and an asset of exceptional strategic importance to the region,” according to a 2005 report by the Allard K. Lowenstein International Human Rights Project at Yale Law School, on select companies’ operations in Sudan. Yale is one of the schools that has shed its holdings of several companies doing business in Sudan.

Many universities, the first being Harvard in 2005, have dumped shares of PetroChina, which is 88% owed by the China National Petroleum Co., which in turn is owned by the Chinese government.

PetroChina says it is separate from CNPC, but Harvard’s divestment committee disputed that argument, saying in a 2005 report that management of the two were similar and that finances were entwined.

(The Wall Street Journal)